Plan retirement in your 40s

The best time to start thinking about retirement is when you get your first paycheck. But for many, retirement planning doesn't often come into focus until they're established in their careers and have families. Even if you begin to invest for retirement when you reach age 40, it's important to use every tool at your disposal, including the Roth IRA account.

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Ronald Miolla, associate professor of finance at Concordia University, says, "Fewer individuals are part of a traditional retirement plan, but the tax-advantaged retirement accounts such as Roth IRAs and 401(k)s allow investors to maximize their retirement savings after taxes. The Roth IRA is available to most investors and allows the investment in the Roth to be withdrawn at retirement without incurring taxation. The 401(k) or 403(b) allows for a tax deduction today and no taxation until the funds are withdrawn at retirement. Thus, investors should take advantage of these tax advantages when saving for retirement."

Get going on your 401(k)

If you haven't done so already, join your company 401(k) or increase your contribution as much as you can. Try to go beyond the minimums that will qualify you for the company match. You should be going for broke here -- for the tax breaks and to make up for lost time. The 2011 limit is $16,500. When you reach 50, you can increase that amount by another $5,500.

Use the spousal IRA

Sometimes couples in their 40s are in a single-income position with one parent in charge of child-rearing and managing the household and the other responsible for bringing home the bacon. The stay-at-home spouse loses out on an employer 401(k), but that doesn't mean he or she cannot save and cut the family's tax bill further. Open a spousal IRA with your broker and put in $5,000 for 2011 or $6,000 if your spouse is 50 or older.

Open a Roth IRA

A Roth IRA account can be key to your ability to save well for retirement. Although not tax-deductible now, those who earn less than the phase-out level -- which is currently between $169,000 and $179,000 for couples filing jointly -- can put aside up to $5,000 each or $6,000 if the spouse is 50 or older. Roth IRA money can be withdrawn tax-free if the account has been open for at least five years and you are older than 59 ½.

Miolla adds, "If a person in their 40s has not been saving for retirement, then they should start today. They should remember that the dollars they save will be more important to them than the dollars that someone is saving who has been saving for years. The reason for this is the first dollars you save will be spent on the most important items in retirement. The dollars you save first will go to keeping yourself comfortable. Later the dollars you save will go to wants and luxuries that you could choose to live without."

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